Regulators ease listing rules, set guidelines for SME sponsoring

By Keren Concepcion G. Valmonte

PHILIPPINE corporate regulators have approved the amendments in board listing rules and have released guidelines for small, medium, and emerging (SME) firms listing under its new sponsor model.

The Philippine Stock Exchange (PSE) published the memorandum detailing the changes, which the Securities and Exchange Commission (SEC) had approved last month.

The regulators will now be prioritizing net income reports over a company’s earnings before interest, taxes, depreciation, and amortization (EBITDA).

“The applicant company must have a cumulative net income, excluding non-recurring items, of at least P75 million for three full fiscal years immediately preceding the application for listing and a minimum net income of P50 million for the most recent fiscal year,” the memorandum stated.

Previous rules required companies to report a cumulative consolidated EBITDA, excluding non-recurring items, of at least P50 million for three consecutive years before the filing of its application.

The minimum net income requirement for the most recent fiscal year replaced the rule on having an EBITDA of at least P10 million for the past three years.

Those operating for at least 10 years before filing for listing may be exempted from the three-year track record requirement, provided that these companies have a cumulative net income of at least P75 million for two out of the three fiscal years before filing.

Regulations on market capitalization and minimum capital requirement have been removed. However, a specific requirement on stockholders’ equity has been adopted.

“The applicant company must have a stockholders’ equity of at least P500 million in the fiscal year immediately preceding the filing of the listing application,” regulators said.

Guidelines on minimum public offerings have also been updated. Companies with a market capitalization below P500 million must offer 33% or P50 million, whichever is higher; those with over P500 million to P1 billion must offer 25% or P100 million, whichever is higher; while those with over P1 billion must offer 20% or P250 million, which is higher.

Past rules on minimum public offerings covered those with market capitalizations worth up until P10 billion.

Meanwhile, market regulators have removed the minimum capital requirement for those listing under its SME board. The operating history for companies applying to the SME board has also been lowered to two years from three years.

The requirement for an EBITDA of at least P15 million remains, however, regulators put a requirement on revenues.

“[Companies must have] cumulative operating revenues or sales of at least P150 million for the three fiscal years immediately preceding the filing of the listing application or such shorter period as the company has been operating,” the memorandum said.

“[They must also post] an average net sales/operating revenues growth rate of at least 20% over the two fiscal years immediately preceding the filing of the listing application,” it added.

A stockholders’ equity of at least P25 million is also now required for those planning to list in the SME board.

Restrictions for SME board applicants include: no listing of portfolio and passive income companies, prohibition on backdoor listing, and no offering of secondary securities for companies exempt from the track record and operating history requirements.

SMEs that do not meet the requirements may opt to be listed via a sponsor.

“An applicant company that does not meet the required track record of profitable operations and/or stockholders’ equity may apply for listing with the favorable endorsement of a listing sponsor accredited by the exchange,” the memorandum said.

According to regulators, sponsors will maintain “the standard and quality of companies listed in the SME board under the sponsor model.” Sponsors are also expected to uphold the integrity of the market.

Sponsors should be corporations or partnerships registered with the SEC. They should also have at least five years of experience in a leading role or have at least two of its key personnel have the five-year leadership experience.

Regulators also require sponsors to be covered by a “professional indemnity insurance” equivalent to the value of the public offering to cover for damages resulting to investors, should the sponsor misconduct or be negligent in its sponsor responsibilities.

Sponsors are expected to submit a report, which includes assessment of the applicant’s business plan, future prospects, financial performance, and risks related to the applicant’s business and future prospects.

Listing applications should be filed by the sponsor on behalf of the listing applicant. Those planning to sponsor companies to be listed on the market are expected to do their due diligence on the applicant’s background.